PROJECT PROPOSAL

On the establishment
of

GRANITE & TERRAZZO

MANUFACTURING PLANT

AT
TIGRAY REGIONAL STATE, H/WAJIRAT
WEREDA

PROMOTER: ATO AHFEROM SEARE BRHANE

January, 2020
 Table of content
1. EXECUTIVE SUMMARY .............................................................................................................. 4

1.1. DESCRIPTION OF BUSINESS OR PROJECT ............................................................................................... 4

1.2. AMOUNT OF FINANCING REQUIRED .................................................................................................... 4
1.3. MARKET PROSPECT ........................................................................................................................ 5
1.4. TECHNICAL FEASIBILITY .................................................................................................................... 5
1.5. ORGANIZATION AND MANAGEMENT ................................................................................................... 5
1.6. FINANCIAL VIABILITY ....................................................................................................................... 5
1.7. SOCIO ECONOMIC JUSTIFICATION ....................................................................................................... 6
1.8. KEY SUCCESS FACTOR ...................................................................................................................... 6

2. INTRODUCTION ............................................................................................................................ 7

2.1. BACKGROUND OF THE PROMOTER ..................................................................................................... 7

2.2. PROJECT BACKGROUND ................................................................................................................... 7
2.3. OBJECTIVE OF THE PROJECT .............................................................................................................. 8
2.4. LOCATION .................................................................................................................................... 9
2.5. POLICY FRAMEWORK FOR PRIVATE SECTOR DEVELOPMENT ....................................................................... 9

3. MARKET STUDY ......................................................................................................................... 10

3.1. PAST SUPPLY AND PRESENT DEMAND ............................................................................................... 10

4. TECHNICAL STUDY ................................................................................................................... 15

4.1. LOCATION .................................................................................................................................. 15

4.2. PLANT CAPACITY AND PRODUCTION PROGRAMME................................................................................ 15
4.3. TECHNOLOGY AND ENGINEERING ..................................................................................................... 16
4.4. MATERIALS AND INPUTS ................................................................................................................ 19

5. ORGANIZATION AND MANPOWER........................................................................................ 22

5.1. ORGANIZATION AND MANAGEMENT ................................................................................................ 22

5.2. MANNING.................................................................................................................................. 22

6. ENVIRONMENTAL IMPACT ..................................................................................................... 25

7. FINANCIAL ANALYSIS & KEYASSUMPTIONS ..................................................................... 26

8. ECONOMIC BENEFITS............................................................................................................... 31

9. CONCLUSION & RECOMMENDATION .................................................................................. 32

2
Tables
TABLE 1: SUMMARY OF INITIAL INVESTMENT COST .................................................................... 4
TABLE 2: FINANCIAL VIABILITY ................................................................................................... 5
TABLE 3: Local Production of Terrazzo (M2) ............................................................................... 10
TABLE 4: Terrazzo Export (M2) .................................................................................................... 11
TABLE 5: Apparent Consumption of Terrazzo (M2)...................................................................... 11
TABLE 6: Projected Demand and Unsatisfied Demand (M 2)......................................................... 13
TABLE 7: LIST OF MACHINERY AND EQUIPMENT ........................................................................ 17
TABLE 8: OFFICE FURNITURE ...................................................................................................... 18
TABLE 9: BUILDINGS AND CIVIL WORKS ..................................................................................... 19
TABLE 10: PRODUCTION PROGRAM ............................................................................................ 15
TABLE 11: RAW MATERIAL REQUIREMENT PER YEAR ............................................................... 20
TABLE 12: ESTIMATED ANNUAL UTILITY COST .......................................................................... 21
TABLE 13: MANPOWER AND COST .............................................................................................. 23
TABLE 14: PRE -PRODUCTION CAPITAL EXPENDITURE ............................................................... 24
TABLE 15: WORKING CAPITAL REQUIREMENT ........................................................................... 26
TABLE 16: INITIAL INVESTMENT COST ....................................................................................... 28
TABLE 17: ANNUAL PRODUCTION COST AT FULL CAPACITY ..................................................... 28
TABLE 18: PAYBACK PERIOD ...................................................................................................... 29
TABLE 19: INTERNAL RATE OF RETURN ...................................................................................... 29

3
1. EXECUTIVE SUMMARY

1.1. Description of business or project

This project is for making Granite, mosaic terrazzo tiles. Mosaic floor tiles, are
made of cement, sand and coloured stone chips. They are sold in attractive colours
with a shining smooth surface. They are used extensively in making floors of
residential as well as commercial blocks.

This project envisages the production of 51,136 Terrazzo Tile and 50,000 Granite
Tile per annum. 24 full time staff and 20 temporaries would be employed for the
duration of the project at full production. The promoter of this project is Ato
Ahferom Seare who has lived in H/wajirat wereda, Hewane town. The land
required for the project is 8 hectares.

1.2. Amount of financing required

The initial investment cost of the project is estimated birr 32.1 million. From this
birr 28.34 million is for fixed cost and birr 3.75 million for working capital. The
major breakdown of the total initial investment cost is shown in the following
Table.
TABLE 1: SUMMARY OF INITIAL INVESTMENT COST

s/No Description total

1 Building, 6,710,000
2 Machinery& equipment 17,926,980
3 Office furniture 91,160
Pre-production capital
4 300,000
expenditure
5 Vehicles 3,310,200
6 Working capital 3,755,891
Total initial investment 32,094,230

4
1.3. Market prospect
As indicated in section 3 in this feasibility study, the current demand for Terrazzo
and Granite Products in the market is 2,165,532 m2 and the demand is very
attractive.

1.4. Technical feasibility

The necessary machinery’s and equipment’s – for Terrazzo and Granite
manufacturing etc, indicated on table-8 will be purchased by the project
The necessary constructions such as machinery house, office, store, toilet & shower,
land preparation and other necessary structures will be constructed. (See table -5).

1.5. Organization and management

The company will employ a total of 93 permanent and 100 temporary workers will
be employed in different project activities. The labour force is available in the local
market. The women will benefit from the project. The overall supervision of the
company will be undertaken by Ahferom Seare who has got many years’ experience
in managing various businesses of his own. The company shall put in place a proper
organizational set up.

1.6. Financial viability

The financial viability of a project has been tested by applying all the relevant
measures and was found to be very satisfactory and viable. The following results
have been found in the projections made.

TABLE 2: FINANCIAL VIABILITY

S/N Description Before tax After tax

1 Project IRR 20.93% 15.37%
2 Sensitivity test
a When benefit decrease by 5% 17.83% 11.69%
b When operating, costs increase by 5% 19.74% 13.98%
0 Description Year one Year ten
3 Net profit 4,227,739 6,344,897
4 Net cash inflow 4,524,477 13,947,117
5 NPV at 12% discounting factor - 4,508,835

5
1.7. Socio economic justification

The project is socially desirable, economically very useful and environmentally

viable. This can be justified from various angles. To state some of the benefits of the
project;

− Employment opportunity for 93 full time staff and 100 temporaries.

− Saving energy and environmentally viable
− Tax income for the government.

1.8. Key success factor

Key success factors in the Terrazzo and Granite manufacturing business include the
following:
− Producing diversify products.

− There is a huge demand for stove and construction materials.

− The project is managed by skilled man power.

− The project will have its own raw material source /gravel stone

6
2. INTRODUCTION

2.1. Background of the promoter

The promoter of this project is Ato Ahferom Seare who has lived in Hewane town.
He has involved in many businesses including dairy cattle production investment and
has got more than 16 years of experience in various business activities. His close
experience on different business coupled with the motivation of the government to
investment has kindled the idea of establishing Terrazzo and Granite manufacturing
factory at H/wajirat where there is a no such an establishment.
Project Name Terrazzo and Granite manufacturing
factory

Project Location H/wajirat, Tigray Regional state. Ethiopia

Requested Land 8 hectares

Project owner Ato Ahferom Seare

Address Tigray, Ethiopia

Type of Business Manufacturing

Project status New

Purpose Terrazzo and Granite manufacturing

Legal Form of Organization Privet

Construction Program 3 month building permit phase

12-month construction period

9 month finishing works & test operation

Total Estimated Capital Birr 32.1 Million

2.2. Project Background

Granite is a natural igneous rock formation of crystalline texture. Cutting granite has
got wide application in the building construction sector. In addition, it is used as a
tombstone.
Granite products can be intended both for local and export markets and their demand
is expected to increase with growth in the construction sector

7
 Terrazzo consists of marble, granite, onyx or glass chips in portland cement, modified
portland cement or resinous matrix. The terrazzo is poured, cured, ground and
polished. Typically used as a finish for floors, stairs or walls, Terrazzo can be poured
in place or precast.
Terrazzo flooring has a long and rich history that dates back over 1500 years.
Terrazzo, from the Italian word for terraces, is one of the original recycled products –
created centuries ago by Venetian workers utilizing the waste chips from slab marble
processing. Today terrazzo flooring continues to provide the ultimate in durability and
low maintenance, typically lasting the life of the building. The combination of beauty,
durability, and low maintenance has led to a renaissance in the use of terrazzo over the
past decade. The demand for terrazzo is increasing in many markets, from
performance driven institutions such as schools, airports, and hospitals, to the designer
driven markets of retail and commercial buildings. Terrazzo is the ultimate choice
when evaluating finishes on a life cycle basis.
In recent years the construction industry has begun to focus on the environmental
impact of many construction materials. The evaluation of products in the “green
movement” encompasses many elements, which must be weighed on a scale of
relative importance. These elements include the longevity of the material, the
composition, maintenance, recycled contents, embodied energy, and the “cradle-to
grave” environmental impact.
Terrazzo is a hard floor covering. Terrazzo is used in large areas where durable, long
lasting floor. Some of these are: -Shopping Centers, Railway Stations, Underground,
Airports, Mass Transit Areas, Light Industrial, Restaurants, Cafes, Retail, External
Areas etc.

2.3. Objective of the project

The main objective of the project is manufacturing and supplying of Granite and
Terrazzo Tile for local market according to its type. This will be achieved by
establishing competitive private company that generates employment and income for
owners and provides affordable, Terrazzo Products for consumers in the country.
The main specific objectives are
• To supply many types of Granite and Terrazzo Tile for local market.
• To generate job opportunity
• To save foreign currency

8
 The project will be unique:

− Produce Granite and Terrazzo Tile of different types

− Retail place with its own production facility.
− Will able to produce a standard competitive line of precast Terrazzo Tile while
producing custom goods for special orders.
− Ability to match colors, styles and finishes on Social Orders. High quality
design of product.

2.4. Location
The proposed project, Terrazzo and Granite Tile manufacturing project, will be
established in H/Wajirat wereda, of Tigray Regional State, located at the specific site,
Hewane Tabia. The site is selected for its proximity to market, electricity and other
infrastructure Skilled man power etc.

2.5. Policy framework for private sector development

Ethiopia’s development goals are laid down in the Plan for Accelerated and Sustained
Development to End Poverty (PASDEP) and its industrialization goals are set out in the
Industrial Development Strategy. The Industrial Development Plan mentions a few
general principles – e.g. to recognize the role of the private sector as an engine of
growth; the importance of state leadership to challenge and support developmental
firms; and the need to build on both foreign and domestic investors. Additionally, it
specifies priority areas for selective interventions that favour certain sectors over
others.
Accordingly, the Regional government of Tigray has named manufacturing factory as
one of its priority sector. According to Tigray investment promotion office, the
regional government and wereda administration are committed to attracting potential
investors to the sector and provide all needed support.

9
3. MARKET STUDY

3.1. Past Supply and Present Demand

Terrazzo can be made in almost any shape depending on complexity and application
Selection of materials allows bespoke colours to be created with a virtually
unlimited color palette and the ability to form intricate strip designs, terrazzo can be
as visually impactful as it is practical. Many hospitals incorporate directional guides
into their floor design, helping to guide patients, staff, and visitors to appropriate
places within the facility. Children’s hospitals feature bright colors and playful
images to appeal to their young patients.
The demand for terrazzo tiles is high mostly in urban centers especially construction
companies. The product application can be divided in to three broad categories i.e.
structural, ornamental and residential fields.
The country’s requirement of Terrazzo is largely met through local production. The
data obtained from CSA on local production is given in Table 3.

TABLE 3: Local Production of Terrazzo (M2)

Year Production
1997 254,817
1998 251,433
1999 280,224
2000 456,705
2001 407,625
2002 342,546
2003 629,409
2004 386,754
2005 1,033,356
2006 483,006
2007 601,224
Average 466,100
Source; “Report on large and medium scale manufacturing and electricity industries
survey” CSA, 2007.

During the period 1996 -2006, the maximum local production of Terrazzo was
1,033,356 m2 (year 2005), while the minimum 251,433m2 was registered in year

10
 1998. In the remaining years, production was fluctuating between these two
extremes, around a mean figure of 466,100 m2.
Ethiopia export high quality Terrazzo to various countries. During the period 1997-
2006 on average the country has exported 2,043 m2 of Terrazzo (see Table 4).
TABLE 4: Terrazzo Export (M2)
Year Export
1997 152
1998 197
1999 294
2000 2186
2001 5926
2002 6006
2003 1315
2004 113
2005 1128
2006 3114
Average 2043

Source- External Trade Statistics, Customs Authority.

Therefore, the apparent consumption of Terrazzo is composed of domestic

production minus export. Table 5 summarizes the past local production, export and
apparent consumption of the product.

TABLE 5: Apparent Consumption of Terrazzo (M2)

Apparent
Year Local Export
Consumption
1997 254,817 152 254,665
1998 251,433 197 251,236
1999 280,224 294 279,930
2000 456,705 2186 454,519
2001 407,625 5926 401,699
2002 342,546 6006 336,540
2003 629,409 1315 628,094
2004 386,754 113 386,641
2005 1,033,356 1128 1,032,228
2006 483,006 3114 479,892
2007 601,224 NA 601,224

11
 As can be seen from Table 5, apparent consumption of Terrazzo shows a general
increasing trend although, the annual consumption is erratic. In 1998 apparent
consumption has decreased by about 1.38 % compared to 1997. However, in 1999 and
2000 apparent consumption increased by about 11.36% and 61.15% respectively. In
year 2001 and 2002 compared to the year 2000 and 2001 apparent consumption has
registered a decline of 13.40% and 16.76% respectively. In 2003 however, apparent
consumption has increased by 92.73 % which then decreased by 38.32% in year 2004.
The fluctuating trend of apparent consumption has also continued during the remaining
years, increasing by 166.55% in 2005, decreasing by 54.01% in 2006 and again
increasing by 26.93% in 2007. However, during the time under consideration apparent
consumption have registered an annual average growth rate of 23.49%.
Given, the considerable fluctuations in the apparent consumption of the products, the
average annual apparent consumption during the last five years (2003 – 2007) is
considered to reasonably reflect the present apparent consumption for the product.
Accordingly, the year 2008 local demand for the product is estimated at 625,616 m2
Regarding export as can be seen from Table 4 during the period 1997 – 2006 export of
Terrazzo from Ethiopia has shown an increasing trend registering an annual average
growth rate of about 200%.
However, export of Terrazzo fluctuates from year to year without a visible trend. For
example, during the period 1997 – 1999 the average export was only 214 m2 which
jumped to 2,186 m2, 5,926 m2 and 6,006 m2 in 2000, 2001 and 2002, respectively and
then declining to 1,315 m2 and 113 m2 in the succeeding year and moderately
increasing to 1,128 m2 and 3144 m2 in 2005 and 2006, respectively.
Therefore, since export data does not show a discernible pattern, it is assumed that the
average annual export during the recent five years (2001 – 2006) reasonably reflects the
year 2008 level of export. Hence, present export demand for Terrazzo is estimated at
2,335 m2.
Accordingly, the year 2008 total demand (local plus export) for Terrazzo is estimated at
627,951 m2.

3.2. Projected Demand

The future demand for Terrazzo, like many other construction materials is a
function of a number of interrelated variables. These variables that are essential in
determining the magnitude and trend of demand for cement are: -
− The overall economic development level and growth trend of the country,

12
 − The pattern and growth trend of the construction industry,
− Government policies and regulations that have impact on the future level and
trend of construction activities, and
− Size of population and its growth rate.
Considering all the above factors and the growth trend in supply observed from the
historical data (both local and export), future demand for the product is
conservatively projected to grow at a rate of 10%, annually. Moreover, in order to
estimate the demand supply gap, the average local production during the period
2004 – 2007, which was 626,085 m2, is assumed to be the existing local capacity
(see Table 6).
TABLE 6: Projected Demand and Unsatisfied Demand (M2)

Year Total Domestic Unsatisfied

Projected Supply Demand
Demand
2019 1,791,617 626,085 1,165,532
2020 1,970,779 626,085 1,344,694
2021 2,167,857 626,085 1,541,772
2022 2,384,643 626,085 1,758,558
2023 2,623,107 626,085 1,997,022
2024 2,885,418 626,085 2,259,333
2025 3,173,960 626,085 2,547,875
2026 3,491,356 626,085 2,865,271
2027 3,840,491 626,085 3,214,406
2028 4,224,540 626,085 3,598,455
2029 4,646,994 626,085 4,020,909

3.3. Target market, competition and Pricing

Target market
In determining target market, it is important to consider current and potential
competitor's position, consumption trend of regions, access of infrastructure,
capacity of envisaged project, concentration of end users, and related factors.
Based on this assumption, the project under establishment has taken Ethiopia as
target market, which will be classified Tigray region as strategic lion share market,
Amhara Addis Ababa and Afar region as competing market and other parts of

13
 regions as niche market. Being cleaning material, there is no as such demographic
group identification for consumption. All high economic group will make use of it.
Hotel Restaurants, hospital, Airport are also our target market.

Competition level
Level of competition is fierce if there are many similar companies supplying
similar or substituting product to the same market. Regarding to concert material
producer, there are many direct competitors in Addis Ababa but the other regions
are still vacant that their demand is unsatisfied and make use of other substitute
goods or supply from Addis Ababa but with higher price due to transportation
costs. With this end, the envisaged plant's product will have best quality, price and
unique feature formulated product, which can build competitive advantage over
others in fulfilling better quality, reasonable price and mass delivery.

Pricing and Distribution

The price of Terrazzo and Terrazzo products varies depending upon the type, colour
and other factors. The average price for the new project is Birr 220 per square meter
for color Terrazzo. The product will be distributed through the existing outlets of
construction material retail shops as well as a distribution and storage warehouse at
least in major cities

14
4. TECHNICAL STUDY

4.1. Location
The proposed project, Terrazzo and Granite Manufacturing project, will be established
in H/Wajirat Wereda of Tigray Regional State. Because of availability of land,
infrastructure like road, telecommunication etc the area is suitable for the factory
establishment.

4.2. Plant capacity and production programme

4.2.1. Plant Capacity
The proposed Terrazzo and Granite manufacturing capacity will be determined based
on a number of economic variables such as the scope of the market, level of
investment, availability of skill manpower, quality and selling price of the product,
availability of supply inputs and so on.

However, in this project, we have taken the level of investment to determine the
capacity. Accordingly, the envisaged plant will have a manufacturing capacity of
51,136 m2 Terrazzo and 50,000 m2 Granite per year.

The annual production of the company considering in a single shift of 8 hours per day
and 300 working days per year.

4.2.2. Production Programme

The project is assumed to start operation at 75% of its rated capacity, which reaches
85% of the rated capacity in the second year. Full capacity production will be attained
in the third year and thereafter.

TABLE 7: PRODUCTION PROGRAM

Attainable capacity
Project year
(%) m2
38,352
1st 75%
43,466
2nd 85%
3rd and above 100% 51,136

15
4.3. Technology and engineering

4.3.1. Technology
4.3.1.1. Product description and production Process
MANUFACTURING PROCESS OF TERRAZZO

 Marble aggregates are sourced from material waste from a quarry and made to
suitable size
 Aggregates and cements are automatically weighed out into the tile press mixer
where water and pigments are added
 The mix is dosed into a tile press and the material is vibrated to ensure that the
mix is evenly spread in the mould
 The tile backing made from a mixture of Portland cement and limestone
aggregate is applied on top of the face mix in the mould and the tile is pressed
 ! The pressed tiles are removed and put in a curing chamber where the tile gains
strength and cure overnight
 The tiles go through a grinding machine which produces a smooth even surface
to the tile and exposes the aggregate in the face of the tile

Figure 1: Terrazzo and Granite manufacturing flowchart

16
4.3.2. Engineering
4.3.2.1. Machinery and Equipment
The machinery and equipment required by the project will be procured from local
and foreign sources. The total cost of machinery and equipment is estimated to be
Birr 17,926,980. The plant machinery and equipment required by the plant are
listed down in Table 7.

TABLE 8: LIST OF MACHINERY AND EQUIPMENT

No. Description Unit Qty (SET) unit price Total price

A Granite processing machine
1 Gang block cutting machine no 2 1,120,000 2,240,000
2 Slide cutting machine no 2 980,000 1,960,000
3 Trolley type cutting machine no 2 700,000 1,400,000
4 Polishing machine, Pneumatic no 2 420,000 840,000
5 Polishing machine, hand-operated no 2 350,000 700,000
6 Auto-polisher, twin head Set 2 490,000 980,000
7 Quarry equipment Set 1 2,100,000 2,100,000
8 Mining Equipment no 1 1,680,000 1,680,000
9 Auxiliary equipment & Tools no 2 1,050,000 2,100,000
B Terrazzo manufacturing machine
1 Hydraulic Pump no 1 261,417 261,417
2 Grinding Machine no 1 421,102 421,102
3 Colour Mixing Machine no 1 322,834 322,834
4 Semi Polishing Machine no 1 236,850 236,850
5 Tile Moulding machine no 2 112,283 224,566
6 Hydraulic Accumulator no 1 284,251 284,251
7 HOT - Crane 1-ton Capacity no 1 61,417 61,417
8 Curing Chambers covers leak proof type no 1 122,834 122,834

Plain Steel Plates 45 mm x 420 mm x

9 520 mm with wooden Partitions of no 500 921 460,629
suitable sizes
10 Hydraulic Palled truck (2-ton Cap:) no 1 184,251 184,251
Steel racks capable of holding 100 Blocks
11 no 25 12,456 311,400
of 150 mm thickness.
12 Block Conveyor with all accessories no 1 245,669 245,669
13 Electric/Gas-Welding & cutting no 1 18,425 18,425
14 High Speed grinder no 1 65,826 65,826
17 Diesel Generating Set 300 KVA rating no 1 352,754 352,754

18 Distribution transformer300 KVA rating no 1 307,086 307,086

19 Other tools & Tackles, Jigs &Fixtures 1 45,669 45,669
Total amount of machinery and equipment cost : 17,926,980

17
4.3.2.2. office furniture
A lump sum provision of birr 91,160 for procurement of office furniture is assumed.
This would include table, desk, chairs, and etc. The breakup of plant Office Furniture &
Fixtures is as follows:

TABLE 9: OFFICE FURNITURE

Unit Total
S/N Description Unit quantity price price
1 Managerial chair, high back pcs 5 1400 7,000
2 Open book shelf pcs 1 1800 1,800
3 Wooden filling cabinet, four drawers pcs 1 1600 1,600
4 Coat hunger pcs 20 500 10,000
5 Executive sec. Desk and chair set 1 3300 3,300
6 Office desk pcs 5 1950 9,750
7 Arc joint table pcs 1 380 380
8 Computer table pcs 1 1960 1,960
9 Brand desktop computer with set 3 14060
42,180
network access
10 Mobile drawer pcs 1 1090 1,090
11 Swivel chair pcs 3 1200 3,600
12 Curtains & Interior Decoration
for office
13 Guest chair with arm seat pcs 10 850 8,500
Sub Total 91,160

4.3.2.3. Vehicles
The plant needs vehicles for transportation of finished product and for office activities.
The cost of the vehicles is estimated at Birr 3,310,200.

4.3.2.4. Building and Civil Works

The project will employ a modern industrial design that would allow easy logistical
handling of raw materials and promote a better working environment of the plant
overall operation. Buildings for different purposes like storehouse, production open
workshop, and offices ablution facilities, staff accommodation will be erected.
Accordingly, the total cost of construction is estimated to be Birr 6,710,000. The
project comprises the following buildings.

18
 TABLE 10: BUILDINGS AND CIVIL WORKS

Quantity Cost per Total

S/N Description
m2 m2 cost/birr
Production Workshops (Light Iron
1 1,500 1,500 2,250,000
Structure)
2 Warehouse/ Raw material store 500 1,500 750,000
3 Warehouse/ utility store 500 1,500 750,000
4 Curing Chamber (Terrazzo) 2,000 500 1,00,000
5 Office & Rest Room 250 1,500 375,000
6 Showers and toilets 100 1,500 150,000
7 Changing room 200 1,500 300,000
8 Cafeteria 200 1,500 300,000
9 Guard house 50 1,000 50,000
Boundary walls, fences, O.H. water ranks
10 785,000
construction etc.
11 Waste recycle and incineration are
Loading and unloading area, parking and
12
walk ways et
Green area
Grand Total 6,710,000

4.4. Materials and inputs

4.4.1. Raw Materials
Materials used for terrazzo and cement tiles production

Marble Chips: Marble has been defined as a metamorphic rock formed by the
recrystallization of limestone. However, in recent decades, marble has been redefined to
include all calcareous rocks capable of taking a polish (such as onyx, travertine, and
attractive serpentine rocks). Marble is quarried, selected to avoid off color or
contaminated material, crushed and sized to yield marble chips for Terrazzo. Excellent
domestic and imported marble chips are available for use in terrazzo in a wide range of
colors and can be combined in infinite varieties to create color harmonies of every
description.

Cementitious Matrices: Portland Cement provides a good background for marble chips. It
can be tinted to produce various colors. White cement is color controlled during
manufacture. Gray Portland Cement may not be color controlled. For use in terrazzo,
Portland cement should exceed the minimum standards of ASTM C-150

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Mineral Color Pigments: Interior: Shall not exceed two pounds per bag of portland
cement. Exterior: Pigment shall not exceed 1⁄2 pound per bag of Portland Cement.

Modified Cementitious Matrices: Polyacrylate Modified Cement: A composition resinous

material which has proven to be an excellent binder for use in thin-set terrazzo. Minimum
physical properties are stipulated in Polyacrylate Terrazzo specification.

Resinous Matrices: Epoxy or Polyester: A two component thermal setting resinous

material which has proven to be an excellent binder for use in thin-set terrazzo. Minimum
physical properties are stipulated in NTMA Terrazzo specifications.

Divider Strips: White alloy of zinc, brass or plastic are used for function and aesthetics.
Brass and plastic may have a reaction with some resinous materials and should be used
only if deemed safe by the supplier of the resin.

The detail list, quantity required at full production capacity and cost of raw materials is
shown in table 11 below

TABLE 11: RAW MATERIAL REQUIREMENT PER YEAR

Qty. Unit Price

Item No. Description F.C. L.C. Total
[tonne] [Birr]
Terrazzo
1 Portland Cement 316 2,700 554,211 298,421 852,632
2 White Cement 300 2,200 429,000 231,000 660,000
3 Marble Powder 237 200 30,789 16,579 47,368
4 Sand and Stone Chips 568 200 73,895 39,789 113,684
5 Colours 158 300 30,789 16,579 47,367
Grand Total 1,579 - 1,118,684 602,368 1,721,052
Granite
1 Royalty (3% of sales) 450,000 - 450,000
2 Abrasive,100LUX 225 200 6,750 38,250 45,000
3 Abrasive,16-220 375 120 6,750 38,250 45,000
4 Abrasives,320-800 339 170 8,645 48,985 57,630
Grand Total 472,145 125,485 597,630

Remarks- Raw materials are available locally

4.4.2. Utilities
Electric power and water are the two basic utilities required by the plant. When the plant
operates at full capacity, it will require 20,000 kWh of electric power and 5,800 m3 of
water per annum. The cost of the utilities including electricity, and telephone is estimated

20
to be around birr 295,375 per year. Annual estimated cost of utilities at full capacity
operation of the plant is given in Table 12.

TABLE 12: ESTIMATED ANNUAL UTILITY COST

Unit of Monthly Cost Total Annual Cost

Description Required Qty
meas. birr (Birr)
1 Electricity, kWh 120,000 15,000 180,000
2 Water, m3 5,800 4,833 58,000
3 fuel,(56liter per day+birr21/liter) lt 15,000 26,250 315,000
4 lubricants (5% of fuel) - 1,313 15,750
5 Stationary tel. - - 1,000 12,000
Total 48,396 580,750

21
5. ORGANIZATION AND MANPOWER

5.1. Organization and Management

Setting well designed organizational structure for any project is indispensable. The
organizational structure of the project is set initially by the design and flow of the major
components of the projects tasks. Some of its basic purposes are to make a realistic
arrangement between the different sections of the project and their functions; to avoid
unnecessary duplication of activities and ambiguities; to perform the various activities
in a synchronized and co-coordinated manner; and to departmentalize the various
activities. Accordingly, the proposed organizational structure is shown here below.

PROPOSED ORGANIZATIONAL STRUCTURED

General Manager

Secretary

Prod. & Technical Finance & Admi. Purchaser

Manager Manager clerk

Accountants
Operators,
Purchaser
Quality Control ,
Sales Person

5.2. Manning
The plant will require a total of 193 workers whom 93 are permanent workers while the
remaining balance, i.e, 100 are temporary workers. Monthly cost of labor is Birr
360,063. The human resource required by type of job and the monthly and annual
salary is indicated on Table 13

22
TABLE 13: MANPOWER AND COST

Required salary/employee/
S/No job Description Unit Total Monthly salary(birr)
Number Month
A General Manager
1 Production & Technical Manager No 1 6,000 6,000
2 Finance & Administration Manager No 1 5,000 5,000
3 Commercial Manager No 1 5,000 5,000
4 Accountant No 1 3,500 3,500
5 Sales Person No 1 3,500 3,500
6 Purchaser No 1 3,500 3,500
7 Clerk No 3 2,800 8,400
8 Secretary No 2 3,000 6,000
9 Production Foreman No 3 4,600 13,800
10 Quality Controller No 1 2,500 2,500
11 Operator No 5 4,500 22,500
12 Mechanic No 2 2,800 5,600
13 Electrician No 2 2,800 5,600
14 Unskilled labor No 60 2,000 120,000
15 Store keeper No 2 2,200 4,400
16 Guard No 3 1,050 3,150
17 Driver No 3 3,500 10,500
18 labour No 100 1,500 150,000
Sub Total - 168,050
Grand total - 288,050
Employee Benefit: 25% of Basic
- 72,013
salary
Grand Total 193 360,063
 Manufacturer and Finishers require many skills including:

o Working with a variety of specialized hand and power tools

o Performing craft calculations and selecting materials to meet design
requirements
o Interpreting technical drawings and specifications • Planning and
organizing work schedules
o Liaising with other professions and clients
o Performing routine maintenance and repairs on machines

5.3. Training requirement

operators and leader/head should be given four weeks training on production

technology, machine operation and maintenance. On-the-job training on the operation
of machines is required by an expert from the supplier of the machinery equipment
during the erection and trial-run, production period. The total cost of training is
estimated at about Birr 100,000. See table-14

TABLE 14: PRE-PRODUCTION CAPITAL EXPENDITURE

Total price
No Description birr
Registration, licensing and formation of the
company including legal fees, commissioning
1 expenses, etc. 200,000
2 Training 100,000
Total 300,000
6. Environmental impact

The implementation of Terrazzo and Granite manufacturing project will have a pack of

social and economic benefits. It plays a role on the country’s economic development

activity; as the project create a considerable employment opportunity for the citizens,

generates income for local community. Operation of the project also creates a

sustainable market opportunity for the users of Terrazzo and Granite Products in the

region and also in the country and it also saves foreign currency, stabilizes the

availability and price of respective products.

The main adverse environmental impacts potentially arise from issues associated with

the operation of the firm and theses impacts are minimal. Impacts are related to the

solid and liquid wastes, air pollution created during the operation of the firm and

occupational health and safety for workers employed with the company. Mitigation

measures are available for all of the anticipated environmental impacts and have been

included in the project design.

25
7. FINANCIAL ANALYSIS & KEYASSUMPTIONS

7.1. Key assumptions

The project cost estimates for the proposed “Terrazzo and Granite Manufacturing
Business” have been formulated on the basis of discussions with industry stakeholders
and experts. The projections cover the cost of land, machinery and equipment
including office equipment, fixtures etc. Some specific assumptions relating to
individual cost components are given as under.

− over all factory & office renovation

To renovate the factory / office premises in every year, a cost would be incurred for
which an amount equivalent to 1.5% of the total factory/office construction cost is
estimated.
− depreciation treatment

The treatment of depreciation would be on a diminishing balance method at the rate of

10% per annum on the following except the building which is 5%. The method is also
expected to provide accurate tax treatment.

1. Machinery
2. Land & Building Construction
3. Vehicles
4. Furniture and Fixtures etc.
− working capital requirements

It is estimated that an additional amount of birr 1,692,364 (approximately) will be

required as cash in hand to meet the working capital requirements. These provisions
have been estimated based on the following assumptions for the proposed business.

TABLE 15: WORKING CAPITAL REQUIREMENT

Description Amount in birr
Three Months Other Utilities Charges 147,688
Three Months Salaries 627,750
Raw Material for 30 days 860,526
other expense/miscellaneous 56,400
Total
1,692,364

26
 − selling & distribution expenses

For the purpose of this pre-feasibility, it has been assumed that the Terrazzo and
Granite manufacturing unit is engaged in local sales and export. For the purpose of
increasing awareness about its product, the entity will be required to place some
advertisements in local publications. These arrangements would result in additional
cost to the business for which an amount equivalent to 0.2% of the annual sales has
been assumed.

− miscellaneous expenses

Miscellaneous expenses of running the business are assumed to be birr 60,000 per year.
These expenses include various items like office stationery, daily consumables,
traveling allowances etc.

− other assumptions are assumptions: -

Construction period-1 year

Source of finance-30 % equity-70 % loan
Tax holidays- 3year
Bank interest - 12%
Discount cash flow-12%

7.2. Total initial investment cost

The total investment cost of the project including working capital is estimated at Birr
16.03 million, of which birr 14.34 million will be for fixed cost. The major
breakdown of the total initial investment cost is shown in Table 16.

27
TABLE 16: INITIAL INVESTMENT COST

s/No Description Total Bank Equity

1 Building, 6,710,000 4,697,000 2,013,000
2 Machinery & Equipment 17,926,980 12,548,886 5,378,094
3 Office Equipment 91,160 63,812 27,348
Pre-Production Capital
300,000 210,000 90,000
Expenditure
4 Vehicles 3,310,200 2,317,140 993,060
sub Total 28,338,340 19,836,838 8,501,502
Working Capital Requirement for Two Months
1 Supplies Cost 290,375 203,263 87,113
2 Salary and Wage 2,160,375 1,512,263 648,113
3 Raw Material 1,159,341 811,539 347,802
4 Miscellaneous and other costs 145,800 102,060 43,740
145,800 102,060 43,740
sub Total 3,755,891 2,629,124 1,126,767
Total Initial Investment 32,094,230 22,465,961 9,628,269

7.3. Production cost

The annual production cost at full operation capacity is estimated at Birr 5.84 million
(see Table 17). The material and utility cost accounts for 34.6 percent, salary accounts
21.5%, while repair and maintenance take 3.7 percent of the production cost.

TABLE 17: ANNUAL PRODUCTION COST AT FULL CAPACITY

S/N Item year 3 %

1 Operating cost 0 0
1.1 Utilities/ 580750 5%
1.2 Repairs & Maintenance’s 425075.1 3%
1.3 Salary and Wage 4320750 34%
1.4 Raw material 2318682 18%
1.5 land lease cost 1446.429 0%
1.6 other expenses 291600 2%
1.7 advertizing & distribution expenses 20000 0%
0 Total operating cost 7958303 63%
2 Depreciation 2543334 20%
3 Bank interest /finantial cost 2156732 17%
0 Total cost of production 12658370 100%

7.4. Financial evaluation

i) Profitability
According to the projected income statement, the project will start generating profit in
the first year of operation. Important ratios such as profit to total sales, net profit to

28
 equity (Return on equity) and net profit plus interest on total investment (return on total
investment) show an increasing trend during the life-time of the project. Based on the
projected profit and loss statement, the project will generate a profit throughout its
operation life. Annual net profit after tax will grow from Birr 1.45 million to Birr 1.79
million during the life of the project.

ii) Break-even Analysis

The break-even point of the project including cost of finance when it starts to operate at
full capacity (year 3) is estimated by using income statement projection.
BE = Fixed Cost = 38.2 %
Sales – Variable Cost
iii) Pay Back Period
The investment cost and income statement projection are used to project the pay-back
period. The project’s initial investment will be fully recovered within 3 years & 11
months.
TABLE 18: PAYBACK PERIOD
annual amount pay balance of initial investment
year back cost at the end of the year
0 - 32,094,230
1 4,227,739 27,866,491
2 5,819,926 22,046,565
3 8,068,830 13,977,734
4 5,419,974 8,557,760
5 5643958.803 2913801.327
6 5819193.301 -2905391.974

iv) Internal Rate of Return

Based on the cash flow statement, the calculated IRR of the project is 22.34%
TABLE 19: INTERNAL RATE OF RETURN

29
A B
Data Description
- Initial cost of a business
- Net cash inflow for the first year
- Net cash inflow for the second year
- Net cash inflow for the third year
- Net cash inflow for the fourth year
- Net cash inflow for the fifth year
- Net cash inflow for the sixth year
- Net cash inflow for the seventh year
- Net cash inflow for the eighth year
- Net cash inflow for the ninth year
- Net cash inflow for the tenth year
Formula Description (Result)
=IRR Investment's internal rate of return after ten
(A1:A11) years is 15.37%

v) Net Present Value

Net present value (NPV) is defined as the total present (discounted) value of a time

series of cash flows. NPV aggregates cash flows that occur during different periods of

time during the life of a project in to a common measuring unit i.e. present value. It is a

standard method for using the time value of money to appraise long-term projects. NPV

is an indicator of how much value an investment or project adds to the capital invested.

In principal, a project is accepted if the NPV is non-negative.

Accordingly, the net present value of the project at 12% discount rate is found to be

Birr 7.18 million which is acceptable.

NPV at 25%= +ve birr 154,806 NPV at 26%= -ve birr (294,445)

IRR=22.34%

vi) Sensitivity Analysis

An increase in costs of operation or decreasing benefit by 5% will not affect the
profitability of the plant.

30
8. ECONOMIC BENEFITS

Based on the foregoing presentation and analysis, we can learn that the proposed
project possesses wide range of benefits that complement the financial feasibility
obtained earlier. In general, the envisaged project promotes the socio-economic goals
and objectives stated in the strategic plan of the Tigray a National Regional State as
well as promote tourisms of the country.
These benefits are listed as follows
A. Profit Generation
The project is found to be financially viable. Such result induces the project promoters
to reinvest the profit which, therefore, increases the investment magnitude in the
region.

B. Tax Revenue
In the project life under consideration, the region will collect about birr 14.68 million
from corporate tax payment alone (i.e. excluding VAT). Such result creates additional
fund for the regional government that will be used in expanding social and other basic
services in the region.
C. Employment and Income Generation
The proposed project is expected to create permanent job opportunity to 93 permanent
and 100 temporary job opportunities to citizens of the country. This would be one of
the commendable accomplishments of the project.

31
9. CONCLUSION & RECOMMENDATION

1. Conclusion

The project has clear social and economic benefits and will contribute to the reduction
of poverty. The project will create a considerable amount of employment opportunities
for the local community. During the construction and operation phase, the project will
create a direct job opportunity for 93 permanent and 100 temporary workers mainly
from the local community. Operation of the project also creates a sustainable amount of
market opportunities for Terrazzo and Granite Products consumers and distributers.

In addition to this the project is expected to support the knowledge and skill transfer
effort made by the regional government to the local community and generate income to
the government in different forms of taxes from its operation and sales activities.

2. Recommendations

The company should assist the local community by offering employment opportunities,

The company should give emphasis to support small enterprises through creating
supply chain of raw materials and product distribution schemes to and from the
company.

The proponent should create tight contact with the regional and federal governmental
sectors and institutions in order to easily access the market, develop new products
required.

32
Annex 1: Annual revenue
S/N Type of products year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10
1 Terrazzo Tile 7,670,400 8,693,120 ######### ######### ######### ######### ######### ######### ######### #########
2 Granite 7,875,000 8,925,000 ######### ######### ######### ######### ######### ######### ######### #########
Total ######### ######### ######### ######### ######### ######### ######### ######### ######### #########
Annex 2: Annual production cost

S/N Item year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10
1 Operating cost
1.1 Utilities/ 435563 493638 580750 580750 580750 580750 580750 580750 580750 580750
1.2 Repairs & Maintenance’s 425075 425075 425075 425075 425075 425075 425075 425075 425075 425075
1.3 Salary and Wage 3240563 3672638 4320750 4320750 4320750 4320750 4320750 4320750 4320750 4320750
1.4 Raw material 1739011 1970880 2318682 2318682 2318682 2318682 2318682 2318682 2318682 2318682
1.5 land lease cost 4500 1446 1446 1446 1446 1446 1446 1446 1446 1446
1.6 other expenses 218700 247860 291600 291600 291600 291600 291600 291600 291600 291600
advertizing & distribution
1.7 15000 17000 20000 20000 20000 20000 20000 20000 20000 20000
expenses
Total operating cost 6078411 6828536 7958303 7958303 7958303 7958303 7958303 7958303 7958303 7958303
2 Depreciation 2543334 2543334 2543334 2543334 2468334 2468334 2468334 2468334 2468334 2468334
3 Bank interest /finantial cost 2695915 2426324 2156732 1887141 1617549 1347958 1078366 808775 539183 269592
Total cost of production 11317661 11798194 12658370 12388778 12044186 11774595 11505003 11235412 10965820 10696229

34
Annex 3: Project income statement
Start-up Full Capacity
Description 1st year 2nd year 3rd year 4th year 5th year 6th year 7th year 8th year 9th year 10th year
Sales Revenue 15545400 17618120 20727200 20727200 20727200 20727200 20727200 20727200 20727200 20727200
Value added
Net sales 15545400 17618120 20727200 20727200 20727200 20727200 20727200 20727200 20727200 20727200
Cost of production 11317661 11798194 12658370 12388778 12044186 11774595 11505003 11235412 10965820 10965820
Taxable profit 4227739 5819926 8068830 8338422 8683014 8952605 9222197 9491788 9761380 9761380
income tax corporate(35%) - - - 2918448 3039055 3133412 3227769 3322126 3416483 3416483
Net profit 4227739 5819926 8068830 5419974 5643959 5819193 5994428 6169662 6344897 6344897
in % of sales revenue 27% 33% 39% 26% 27% 28% 29% 30% 31% 31%

35
Annex 4: Depreciation and Amortization
s/No Description unit - year-1 year-2 year-3 year-4 year-5 & above
1 Building birr 6,710,000 - - - - -
- Depreciation 5% birr - 335,500 335,500 335,500 335,500 335,500
machinery/packing and
2 birr ######### - - - - -
processing
- Depreciation 10% birr - ######## ######## ######## ######## 1,792,698
3 equipments birr - - - - - -
- Depreciation 10% birr - - - - - -
4 vehicle birr 3,310,200 - - - - -
- Depreciation 10% birr - 331,020 331,020 331,020 331,020 331,020
5 Office furniture birr 91,160 - - - - -
- Depreciation 10% birr - 9,116 9,116 9,116 9,116 9,116
Pre-production capital
7 birr 300,000 - - - - -
expenditure
- Depreciation 25% birr - 75,000 75,000 75,000 75,000 -
- Total ######### ######## ######## ######## ######## 2,468,334

36
Annex 5: Bank repayment Schedule
Amount of loan = Birr 22,465,961
Repayment period = 10 year
Bank Interest rate = 12% per year
Amount of principal repayment = Birr 2,246,596 per year
Year Principal amount Birr principal repayment (Birr)
Interest
0 22,465,961 - -
1 20,219,365 2,246,596 2,695,915
2 17,972,769 2,246,596 2,426,324
3 15,726,173 2,246,596 2,156,732
4 13,479,577 2,246,596 1,887,141
5 11,232,981 2,246,596 1,617,549
6 8,986,385 2,246,596 1,347,958
7 6,739,788 2,246,596 1,078,366
8 4,493,192 2,246,596 808,775
9 2,246,596 2,246,596 539,183
10 0 2,246,596 269,592
Annex 6: CASH FLOW STATEMENT
year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10
A. CASH IN FLOW
Equity contribution 9628269 375589 375589 375589
Bank loan 22465961
Net sales 15545400 17618120 20727200 20727200 20727200 20727200 20727200 20727200 20727200 20727200
net working capital 3755891
salvage value 3355000
total cash inflow 47639630 17993709 21102789 21102789 20727200 20727200 20727200 20727200 20727200 27838091

A. CASH out FLOW

fixed capital 28338340
working capital 3755891 375589 375589 375589
operating cost 6078411 6828536 7958303 7958303 7958303 7958303 7958303 7958303 7958303 7958303
repayment 2246596 2246596 2246596 2246596 2246596 2246596 2246596 2246596 2246596 2246596
interest 2695915 2426324 2156732 1887141 1617549 1347958 1078366 808775 539183 269592
profit tax 2918448 3039055 3133412 3227769 3322126 3416483 3416483
total cash out flow 43115153 11877045 12737221 15386077 14861503 14686269 14511034 14335800 14160565 13890974
Net cash inflow 4524477 6116664 8365568 5716712 5865697 6040931 6216166 6391400 6566635 13947117
cumulative cash flow 4524477 10641141 19006709 24723422 30589118 36630049 42846215 49237615 55804250 69751367